DaVita (DVA) 2025 Earnings Quality Report

Grade: F — Major Red Flags

Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles

Data: SEC EDGAR 10-K (Filed 2026-02-11) + Yahoo Finance

Auditor: KPMG LLP — Clean opinion (Seattle, Washington; auditor since 2000)

Fiscal Year: 2025 (ended December 31, 2025)

One-line verdict: DaVita's 2025 10-K is the story of an over-levered buyback machine. The Company reported operating income of $2,044M (down 2.2% from $2,090M in 2024), net income attributable to DaVita of $746.8M (down from $936.3M), and diluted EPS of $9.84 — all while repurchasing 12.7 million shares for $1.79 billion, or 14.9% of shares outstanding in one year. Stockholders' equity is effectively zero and the screening engine records it as slightly negative; the Altman Z-Score lands at 0.98 in the distress zone, driven almost entirely by the negative equity base. KPMG gave a clean opinion and flagged two Critical Audit Matters — U.S. dialysis patient service revenue recognition (a legitimately complex area for a business where 89% of dialysis patients are on government payer programs) and legal proceedings/regulatory matters. The Beneish M-Score of -2.70 is clean. The F grade is structural: accounts receivable outpaced revenue for two consecutive years (A2 fail), cash of $0.7B covers only 5% of $12.9B in debt (C4 fail), Debt/EBITDA is 4.9x on watch, and the buyback has eliminated the equity cushion.

The Business: U.S. Dialysis + Ancillary

The 10-K's Company Overview states: "Our principal business is to provide dialysis and related lab services to patients in the United States, which we refer to as our U.S. dialysis business. We also operate our U.S. integrated kidney care (IKC) business, our U.S. other ancillary services, and our international operations, which we collectively refer to as our ancillary services, as well as our corporate administrative support functions. Our U.S. dialysis business is a leading provider of kidney dialysis services in the U.S. for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD) or end stage kidney disease (ESKD)."

The 2025 financial summary from the MD&A:

The 10-K explains the U.S. dialysis per-treatment revenue: "Total revenues $ 11,793 $ 11,391 $ 402 3.5%. Average patient service revenue per treatment $ 409.56 $ 391.32 $ 18.24 4.7%. U.S. dialysis average patient service revenue per treatment increased primarily driven by the incorporation of phosphate binders into the ESRD PPS bundle and an increase in average reimbursement rate..."

Ancillary services — especially international — drove most of the top-line growth. The 10-K notes that the ancillary international revenue growth of 37.8% ($977M → $1,346M) reflects international patient growth of "17.6% in international patient growth as of December 31" per the operating highlights.

Net income dropped $190M despite revenue rising $827M. The 10-K attributes part of this to: "our effective income tax rate and effective income tax rate from continuing operations attributable to DaVita Inc. increased in 2025 primarily due to a one-time benefit recognized in 2024 related to non-taxable non-cash gains for previously nonconsolidated businesses, a write down of a 2014 tax refund claim recognized in 2025..." Interest expense also rose on the refinanced debt stack.

The Buyback That Ate the Equity

The 10-K discloses a scale of share repurchase that is unusual even by DaVita's historical standards: "repurchase of 12,678,623 shares of our common stock for aggregate consideration of $1,788 million, and a 14.9% net reduction in our outstanding share count year-over-year."

The 10-K adds: "We retired all shares of common stock held in treasury effective December 31, 2025. Subsequent to December 31, 2025, we have repurchased 1,772,872 shares of our common stock for $217 million at an average price paid of $122.08 per share through February 6, 2026, including repurchases from Berkshire Hathaway Inc. (Berkshire) pu[rsuant to..." The Berkshire reference is significant — Berkshire Hathaway has been DaVita's largest shareholder for years.

The economic result: weighted average diluted shares outstanding fell from 87,274 thousand in 2024 to 75,885 thousand in 2025, a 13.1% reduction. Basic share count fell from 84,991 to 74,227 (-12.7%). This boosted EPS mechanically while reducing net income.

On the balance sheet, the consequence is stark: the screening engine reports D1 goodwill vs. equity as "Goodwill+Intangibles $7.8B = -1193% of equity. Manageable." The negative denominator is the tell — stockholders' equity is negative. The engine actually records this as a "pass" on D1 (because the ratio math goes sideways when equity is negative), but the underlying reality is that buybacks have eliminated the book equity cushion. For a leveraged healthcare business with $12.9B in debt, negative equity is a warning sign even if the cash flows keep servicing the debt.

The Altman Z-Score confirms this: 0.98 in the distress zone. X2 (retained earnings/TA = -0.0188) and X4 (equity/liabilities = -0.0399) are both negative. X3 (EBIT/TA = 0.1102) is healthy — the business makes money — but the capital structure is unusual.

Leverage, Debt, and the Refinancing

The screening engine flags two items. C4 is FAIL: "Cash $0.7B covers only 5% of debt $12.9B." D2 is a WATCH: "Debt/EBITDA = 4.9x (>4x). Financial stress."

The 10-K documents a very active 2025 refinancing: "entry into a new Term Loan A-2 facility in the aggregate principal amount of $2,000 million and a revolving line of credit in an aggregate principal amount up to $1,500 million, and e[ntry into]..." along with: "increase in long-term debt balance related to the third quarter 2024 issuance of 6.875% senior notes due 2032 and the second quarter 2025 issuance of 6.75% senior notes due 2033."

The 10-K also discloses an interest rate hedging strategy: "we purchased an additional $4,750 million notional amount of forward interest rate caps to shield our exposure to significant interest rate increases through 2029; and leverage ratio, as a multiple of Consolidated EBITDA, each as defined by our credit agreement, remained within our target range of 3.0x to 3.5x throughout 2025."

Two observations. First, the 6.875% 2032s and 6.75% 2033s are high-coupon junk bonds by modern healthcare standards — DaVita is paying a meaningful premium over investment-grade issuers. Second, the credit-agreement-defined leverage ratio (3.0-3.5x) differs from the gross Debt/EBITDA the screening engine calculates (4.9x) because the credit agreement uses adjusted EBITDA and excludes certain debt. Both numbers are real; the 4.9x gross figure is what a forensic screen registers.

Accounts Receivable: Two Consecutive Years Growing Faster Than Revenue

The screening engine flags A2 as a FAIL: "AR outpaced revenue for 2 consecutive years." This is a material receivables-quality signal for a dialysis business.

DSO moved from 59.7 days (2023) to 61.1 days (2024) to 64.6 days (2025). The DSO rise of 3 days is not enormous but the two-consecutive-year pattern triggers the A2 fail.

The 10-K's context helps explain: "For the year ended December 31, 2025, approximately 89% of our total U.S. dialysis patients were covered under some form of government-based program, with approximately 73% of our total U.S. dialysis patients covered under Medicare..."

Medicare dialysis reimbursement runs on the ESRD PPS (Prospective Payment System) bundled rate, which is predictable but pays lower per-treatment rates than commercial insurance. The dialysis business depends heavily on a "commercial mix" — patients with commercial insurance in the Medicare Secondary Payer (MSP) period or who pay higher private rates — to generate margin. As the commercial mix shifts, collections can extend.

KPMG's first Critical Audit Matter speaks directly to this area: U.S. dialysis patient service revenue recognition. The 10-K reproduces KPMG's description: "the Company recognized $11,768 million in U.S. dialysis patient service revenue for the year ended December 31, 2025. There are uncertainties associated with estimating U.S. dialysis patient service revenue, which generally take several years to resolve. As these estimates are refined over time, both positive and negative adjustments are recognized in the current period. We identified the recognition of the transaction price the Company expects to collect as a result of satisfying its performance obligations related to U.S. dialysis patient service revenue as a critical audit matter because it involves estimation that requires complex auditor judgment. The key assumptions and inputs used to estimate the transaction price relate to ongoing insurance coverage changes, differing interpretations of contract coverage, determination of applicable primary and secondary coverage, coordination of benefits, and varying patient c[ost-sharing]..."

This is a candid disclosure: estimating what a dialysis provider will actually collect "generally take[s] several years to resolve." The CAM is textbook for the industry, but it also means rising DSO deserves attention.

Second Critical Audit Matter: Legal Proceedings

KPMG flagged a second CAM: Legal proceedings and regulatory matters. From the 10-K: "Due to the nature of the legal proceedings and regulatory matters, a high degree of subjectivity was required in evaluating the completeness of the Company's population of legal proceedings and regulatory matters. Additionally, complex auditor judgment was required in evaluating the Company's probability of outcome assessment, and related disclosures."

KPMG's response: "We involved forensic professionals with specialized skills and knowledge who inspected the Company's compliance case log. Additionally, we assessed the completeness of the population of legal proceedings and regulatory matters and related disclosures by 1) inquiring of certain key executives and directors and 2) evaluating information received through procedures described above and through publicly available information about the Company, its competitors, and the industry."

The involvement of forensic professionals in a CAM is unusual and indicates the legal/regulatory exposure is meaningful. DaVita has operated under various government settlements and corporate integrity agreements over the years relating to Medicare billing practices, anti-kickback allegations, and physician relationships.

KPMG's auditor report: "We have served as the Company's auditor since 2000."

Cash Flow: Strong Operating Cash, Heavy Buyback Use

The screening engine passes C1, C2, and C3. The CFFO/NI of 2.53 is high because of large non-cash items (depreciation on dialysis centers and equipment), favorable working capital, and the tax timing noted earlier. The 10-K reports "operating cash flows of $1,887 million and free cash flows of $1,024 million" — though the engine and the 10-K differ slightly in the free cash flow number (the 10-K's $1,024M likely includes distributions to noncontrolling interests that the engine doesn't subtract). Either way, the business is cash generative.

Comparing the use of that cash:

DaVita is spending more than 100% of free cash flow on buybacks, funded by a mix of cash from operations and new debt issuance.

M-Score: Clean Signal

F-Score returns 1.07, probability of misstatement 0.40% (very low). The negative Altman Z-Score components (X2 and X4) are the structural capital-structure issue, not an earnings-quality issue.

The 18-Point Screening

Revenue Quality

Expense Quality

Cash Flow Quality

Balance Sheet

Acquisition Risk

Manipulation Score

Additional Scores: F-Score probability of misstatement 0.40% (very low). Altman Z-Score 0.98 (distress zone, driven by negative book equity).

Key Risks from the 10-K

1. Government Payer Concentration — "For the year ended December 31, 2025, approximately 89% of our total U.S. dialysis patients were covered under some form of government-based program, with approximately 73% of our total U.S. dialysis patients covered under Medicare..." The ESRD PPS bundled rate is set by CMS and any rate action — positive or negative — flows through immediately. The 10-K credits the 2025 per-treatment increase partly to "the incorporation of phosphate binders into the ESRD PPS bundle" — a CMS rate inclusion decision.

2. CMS Innovation Models (CKCC) — The 10-K notes: "CMS, through CMMI, also subsequently released the framework for certain payment models, including the CKCC model, which would adjust payment incentives to encourage kidney transplants." A successful transplant push could shift dialysis volume down over time. The IKC business is partly a hedge.

3. Legal Proceedings and Regulatory Matters — KPMG's second CAM explicitly involved forensic professionals inspecting the "compliance case log." The disclosure is candid but indicates meaningful ongoing regulatory exposure. The 10-K also notes "it might be necessary to restructure existing compensation agreements with our medical directors and to repurchase or to request the sale of ownership interests in subsidiaries and partnerships held by referring physicians or, alternatively, to refuse to accept referrals for DHS from these physicians, or take other actions to modify our operations. Any finding by CMS or other regulatory or enforcement authorities that we have violated the Stark Law..."

4. Negative Stockholders' Equity — The aggressive buyback has eliminated the equity cushion. The Altman Z-Score of 0.98 in distress territory reflects this — while the business generates positive operating income and cash flow, the capital structure is unusually leveraged and the equity base offers no buffer for adverse events.

5. Interest Rate Exposure and High Coupons — The 2025 issuance of "6.75% senior notes due 2033" and 2024's "6.875% senior notes due 2032" are high-coupon debt reflecting the Company's credit profile. Interest coverage of 3.5x is adequate but thin; any margin compression would be transmitted to the bottom line.

6. AR Growth vs. Revenue Growth — AR outpaced revenue in both 2024 and 2025. DSO rose 5 days in two years. The 10-K's discussion of "ongoing insurance coverage changes, differing interpretations of contract coverage, determination of applicable primary and secondary coverage" explains why receivables can extend — but a two-year pattern is what the screening engine is designed to flag.

7. Competitive and Labor Pressure — "New and emerging entrants have been entering the kidney healthcare business space and the industry continues to experience pricing and costs pressures, regulatory changes, challenging labor market conditions and ongoing developments in new technologies, treatments and therapies."

Summary

Grade: F. Clean accounting but capital structure has no buffer.

DaVita's financial statements are honestly prepared. KPMG — auditor since 2000 — issued an unqualified opinion. The Beneish M-Score is clean at -2.70. The F-Score probability of misstatement is 0.40% (very low). CFFO of $1.89B against net income of $0.75B produces a CFFO/NI ratio of 2.53, reflecting healthy non-cash charges and tax timing, not accounting manipulation.

The F grade is driven by two mechanical failures (AR outpacing revenue for two consecutive years; cash covering only 5% of debt) plus a watch on leverage (4.9x Debt/EBITDA) and an Altman Z-Score of 0.98 in the distress zone. The distress reading reflects one fact: aggressive share repurchases have eliminated book equity. DaVita bought back 14.9% of shares outstanding in 2025 alone, spent $1.79 billion on buybacks plus another $217M through early February 2026, and retired all treasury shares on December 31, 2025. Stockholders' equity is effectively zero.

For readers who recognize DaVita's ownership structure: Berkshire Hathaway is a long-time holder, and the 10-K explicitly notes "repurchases from Berkshire Hathaway Inc. (Berkshire)." Management's buyback strategy is a deliberate capital return decision, not a sign of distress. Operating income of $2.04B and free cash flow of $1.31B mean the debt can be serviced comfortably under normal conditions. Leverage in the credit-agreement-defined EBITDA formula remained within the 3.0x-3.5x target range.

That said, the 10-K is a good read for understanding the specific risks DaVita faces: CMS rate decisions on dialysis, Stark Law and anti-kickback regulatory exposure (hence KPMG's second CAM with forensic professional involvement), payer mix dynamics (the DSO creep of 5 days over two years), and Medicare vs. commercial reimbursement economics (89% government-payer concentration).

Buying DaVita today is betting that CMS reimbursement remains stable, that the CKCC transplant incentive models do not materially reduce dialysis volume, that the legal and regulatory tail is contained, and that the capital return strategy can continue without forcing an equity raise at an unfavorable moment. The accounting is clean — the capital structure is the story.

**Disclaimer**: This report is based on DaVita's 2025 10-K (SEC EDGAR, filed 2026-02-11) and public financial data. This is NOT investment advice.

**About EarningsGrade**: We screen earnings reports for financial red flags. Grade F means major red flags were detected that require serious investigation before proceeding.